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TEXAS (Texas Tribune) — When the news broke that Bitcoin mining company Riot Platforms made $32 million by reducing — or being willing to reduce if needed — its energy use last August in Texas, the outrage was immediate.
The state’s grid operator had frequently asked Texans to conserve electricity during sweltering summer heat, and many saw their power bills soar as they tried to stay cool. Meanwhile the state grid operator and an electricity provider effectively gave millions to a company whose industry is notorious for using gobs of electricity.
Riot made that giant sum of money because of how the state’s electricity market is designed. Companies that use large amounts of power, such as manufacturers or petrochemical plants, have long profited in similar ways.
There are two ways that large power users can make money on the state’s main power grid, according to industry experts. The Electric Reliability Council of Texas, which operates the grid, pays large industrial users that promise to reduce their power consumption as needed, giving ERCOT some wiggle room in case a power plant unexpectedly fails or power demand is higher than forecast.
A company such as Riot also can profit by buying power at negotiated rates ahead of time — retail power companies allow big companies to lock in prices that way — then selling it back into the state market when energy prices soar during extreme heat or cold. In Riot’s case, when electricity prices soared during the summer heat wave, Riot sold power back to TXU, a Dallas-based electricity provider, which sold it back to the grid.
In a September statement that was later deleted from its website, Riot characterized its actions as helping to stabilize the grid.
Riot’s windfall highlighted for everyday power consumers just how much the Texas market can benefit businesses. Critics saw particular problems with cryptocurrency.
Lee Bratcher, president of the Texas Blockchain Council, a group promoting cryptocurrency growth and innovation in Texas, said in an email that cryptocurrency operations can benefit the grid because they are able to reduce or completely shut down their operations quickly.
“Bitcoin miners can use excess power overnight and on days where demand is normal, and they can turn off on very hot or very cold days when power is scarce and electricity prices are high,” Bratcher said in an email.
But Mandy DeRoche, deputy managing attorney in the clean energy program at Earthjustice, a nonprofit environmental law group, said crypto mining businesses shouldn’t be praised for reducing power on the grid when they are using so much to begin with.
“I think that the rewards for their behavior are so lucrative and unfair,” DeRoche said, adding, “It’s like we’re bending over backwards to give money to the (crypto) miner for putting the strain on the grid and the system in the first place.”
China, which was one of the largest crypto mining hubs in the world, banned crypto mining in 2021, concerned about virtual currencies being used for criminal activity and disrupting financial systems. Cryptocurrency operations began opening in Texas, which as of March was home to five of the 10 largest Bitcoin mines in the U.S., according to an April investigation by The New York Times.
Some industry experts have advocated for Texas residents to be able to reap the same sort of benefits for using less power at critical times. Called “demand response,” it’s a way for power companies to pay or credit customers who agree to reduce their power usage when demand is high, by adjusting their thermostats or timing their energy-intensive activities like charging electric vehicles or running pool pumps at times when power demand is low.
Electricity providers such as Austin Energy and Reliant already have programs that pay customers to let the providers adjust their smart thermostats when necessary but the benefit is small. For residential customers, that typically translates to one-time bill credits that can range from $25 to $85.
Ed Hirs, a University of Houston lecturer and energy market expert, said he’s worried that more Bitcoin mines coming to the state will mean higher electricity prices for Texans.
“Why can’t I get $5 a kilowatt an hour for shutting down my power?” Hirs said. “Why are these guys getting a sweetheart deal?”
This summer,one of the hottest in recorded Texas history, Fort Worth resident Terri Rimmer said she conserved because she feared power being cut altogether. Rimmer remembers losing electricity for five days during the deadly 2021 winter storm, when ERCOT called for power cuts to millions of Texans because power generators failed in the extreme cold and the remaining power sources couldn’t keep up with the high demand.
Rimmer said temperatures dropped as low as 25 degrees inside her home during the power outage. She bundled up in layers of clothing and blankets and shared her bed with her cat to stay warm.
That month, a Bitcoin mine that Riot Platforms acquired, Whinstone, received a $125 million windfall by selling power back to the grid, according to an investigation by the Tech Transparency Project.
This summer, when ERCOT warned of tight grid conditions because of unprecedented power demand, Rimmer, 57, turned off her air conditioning, closed her blinds and blackout curtains and put an ice pack on her chest to try to stay cool. Sweat glistened on her face.
"I wasn't like this before,” Rimmer said. “I didn't conserve until that winter storm hit. It's truly traumatizing. For me it changed how I do things."
Earning more from the grid than from selling Bitcoin
According to Bratcher, there are more than 20 industrial-scale Bitcoin mining operations in Texas that can collectively consume up to 2,300 megawatts of energy a day — enough to power about 460,000 homes during times of high demand in Texas. They house computers that run constantly to produce cryptocurrencies, decentralized digital currencies used as alternatives to government-backed, traditional currencies.
Crypto miners essentially compete to solve complex math problems that, when verified, produce one Bitcoin or other cryptocurrency that the companies can either hold as an asset or sell. The more computers they have and the longer they run, the better their chances of solving the problem the fastest.
“Essentially every miner is running the exact same algorithm, and it really is just a matter of luck,” said Samantha Robertson, a member of the corporate strategy team for Bitdeer, another Bitcoin company with an operation in Rockdale. “In order to increase your chances, it makes sense to have these computers running at scale.”
But if the value of Bitcoin is low and the cost of electricity is high, crypto companies can make more money selling power than mining Bitcoin. In August 2023, Riot reported selling 300 Bitcoins for a net proceeds of $8.6 million. Meanwhile, the company said it earned $24.2 million in credits to its electric bill for selling power back to the grid.
In September 2023, Riot said it earned $9 million in net proceeds from Bitcoin sales and $11 million in credits for selling power back to the grid.
Robertson said Bitdeer and other cryptocurrency companies are not doing anything different than other industries by selling power back to the grid when demand and prices rise.
“Quite frankly we’re just playing by those rules,” Robertson said.
Because of how much power cryptocurrency mines use and how quickly they can reduce their power consumption — which can help relieve stress on the grid when demand is high — it is important for ERCOT to work closely with them, ERCOT President and CEO Pablo Vegas said in a September interview.
“I'm interested in their operating characteristics,” Vegas said.
The electricity-selling agreements between retail power companies like TXU and cryptocurrency businesses like Riot aren’t public, so it’s difficult to discover exactly how the companies are benefiting from the current ERCOT rules, said DeRoche, of EarthJustice.
“There's very little regulation, there's no reporting standards,” DeRoche said during a September virtual press conference featuring cryptocurrency opponents from different organizations. “It makes it difficult to track and to get a complete picture of the total impacts.”
Eric Goff, a member of an ERCOT task force that was formed to help manage power demand from large industrial users, said ERCOT has proposed rules to have large power users such as Bitcoin mines register with ERCOT so it could track their impacts on the grid. The rules don’t have a specific deadline to be implemented, he said.
Environmental advocates also argue that there is a less energy-intensive way, called proof of stake, to create Bitcoin that doesn’t require computers to run so many calculations. The Texas Coalition Against Cryptomining held a weeklong protest in October to oppose Riot’s plans to build a cryptocurrency operation near the Central Texas city of Corsicana. Coalition Founder Jackie Sawicky faulted crypto businesses for failing to reduce their energy use.
“Why are we tolerating this?” Sawicky asked in an interview. “It’s insane.”
The potential of residential demand response
In Texas, at least seven electric providers, including Austin Energy, Reliant and CPS Energy, offer residential demand response programs that typically let the providers remotely adjust customers’ smart thermostats a few degrees during critical periods when energy demand is high. Customers have to sign up for the programs.
Other companies such as OhmConnect are working with smart plugs in homes. Don Whaley, senior advisor to business at OhmConnect, said customers can plug devices such as refrigerators, lamps and other ordinary household electrical appliances into the smart plugs, allowing the company to adjust power consumption remotely when necessary.
While tens of thousands of Texans do participate in programs where they agree to reduce energy use — Austin Energy said its program has 33,000 active smart thermostats, while Reliant said 100,000 customers are enrolled in its program — the amount paid to residential customers is small.
Most companies give their customers credits that reduce their electricity bills. For example, Reliant and Direct Energy give out a one-time $25 credit for enrolling in the program, Austin Energy offers a $50 credit for enrolling and a yearly $25 credit for staying, and CPS Energy customers receive an $85 enrollment credit and an additional $30 for each year they participate.
Other companies incentivize through point systems. OhmConnect customers can earn points or currency called Watts that can be traded in for real money, gift cards or to make a donation to charity. Gexa Energy’s Green Rewards program gives residential customers Active Saver Rewards points that customers can redeem as credits to lower their power bills.
Octopus Energy, a Houston-based retail electric provider that has a startup-feeling office with exposed brick, said its Texas customers can sign up for programs that allow Octopus to adjust smart home thermostats and electric vehicle chargers based on power prices, which allows them to offer lower-cost power.
ERCOT is also running pilot projects in the Dallas and Houston areas that let people with Tesla Powerwall batteries sell their extra electricity onto the state grid when it’s needed. This concept is known as a “virtual power plant” and works by adding up lots of small power resources to create a meaningful amount of supply.
Texas Public Utility Commissioner Will McAdams said in an August interview that ERCOT needed to use all available strategies to get power onto the grid.
“It was now or never,” McAdams said. “We needed to get this off the ground and allow our very interested Texas consumers to better engage in the ERCOT system.”
Critics such as energy consultant Doug Lewin say the Public Utility Commission needs to get to a point where it can expand the pilot projects and make the concept a permanent part of how the grid works. Lewin also urged the PUC to put regulations in place so all residential customers can benefit from reducing power use on the grid just like large customers do.
“This is absolutely critical if we’re going to have either a reliable or affordable grid,” Lewin said.
A study by the American Council for an Energy-Efficient Economy, a nonprofit research advocacy group, found that if Texas implements statewide demand response and energy efficiency programs for residential customers and businesses from 2024 to 2030, Texas could reduce peak summer electricity demand by 15 gigawatts and the peak winter demand by 25 gigawatts.
“Residential load is a small thing.” Whaley said. “But if we start getting this general acceptance to where people go, ‘Oh okay yeah, I can go from 72 to 78 degrees for an hour because that’s what the grid needs,’ then you start seeing real reductions in the market, to start seeing real impact.”
Alejandra Martinez contributed to this story.
Disclosure: CPS Energy, Octopus Energy, Texas Blockchain Council, The New York Times and the University of Houston have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.
"Texan Bitcoin miners profit by using less electricity; advocates say all Texans should get the same chance" was first published by The Texas Tribune, a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.
This article originally appeared in The Texas Tribune at https://www.texastribune.org/2024/01/03/texas-bitcoin-profit-electricity/.
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